BEIJING, March 5 (Reuters) - China aims to keep its economy
growing by at least 6.5 percent over the next five years while
pushing hard to create more jobs and restructure inefficient
industries, Premier Li Keqiang said on Saturday.

Growth of 6.5 percent would mark a ripping pace for most
countries but would still be the slowest in China in a quarter
century as world's No. 2 economy grapples with gyrating
financial markets, softening global trade and efforts to reduce
environmental degradation.

"Our country's development faces more and greater
difficulties, and severer challenges this year, so we must be
prepared for a tough battle," Li said ahead of the country's
annual meeting of parliament.

In 2016, Beijing will aim for an economic growth rate
between 6.5-7 percent, as Reuters previously reported, with a
consumer inflation target of around 3 percent and money supply
expansion of around 13 percent, according to a series of draft
reports distributed Saturday before the parliament opened.

Many had been hoping China would post an aggressive target
for fiscal spending to prop growth. But the draft goal of
running a fiscal deficit equivalent to 3 percent of GDP, while
marking a rise from the previous year's target of 2.3 percent,
still disappointed some who had hoped for a number closer to 4.

"The budget deficit of 3 percent is not enough and should be
increased," economist and former central bank advisor Yu
Yongding told Reuters on the sidelines of the meeting.

The reports provide a blueprint of China's aspirations for
the next five years, and show Beijing trying to strike a
delicate balance between holding up growth and restructuring
underperforming industries, which are major contributors to
pollution and are responsible for much of the country's
corporate debt overhang.

Beijing aims to cap total energy consumption at 5 billion
tonnes of standard coal by 2020 - the first time such a target
had been set but disappointing to those who had expected a more
aggressive target. It also set targets for improving water
efficiency, another major environmental challenge for the
country.

China will increase military spending by 7.6 percent this
year, its lowest increase in six years, as the premier vowed to
push on with a modernisation plan that will shrink staffing.

SLOWER BUT BETTER?

Weighed down by sluggish demand at home and abroad,
industrial overcapacity and faltering investment, China's
economic growth slowed to 6.9 percent in 2015. Economists widely
expect it to cool further to around 6.5 percent this year.

That is seen as a healthy adjustment by many economists, as
previous white-hot growth rates have been blamed for inflating
asset bubbles, hobbling the financial system and distracting
firms from investing in upgrading their competitiveness.

But slower growth raises the spectre of social unrest, as
the transformation from low-end manufacturing to high technology
and services would naturally lead to rising structural
unemployment. At the same time the real estate market has shown
signs of becoming unbalanced again, with price surges in top
tier markets standing in stark contrast to sliding prices in
smaller cities.

In the week leading up to parliament, the government flagged
major job losses in the key production industries of coal and
steel as policymakers seek to eliminate inefficiencies and
overcapacity in state-owned enterprises through consolidation
and layoffs.

China aims to lay off 5-6 million state workers over the
next two to three years, two reliable sources said, Beijing's
boldest retrenchment program in almost two decades.

Li said the country will create 10 million new jobs and hold
the urban registered unemployment rate below 4.5 percent in 2016
while dedicating funds to retraining laid off and low-skill
workers.

FIXING MARKETS

Beijing hopes the country's financial markets can play a
stronger role in supporting the transformation.

"We will move forward with the reform of stock and bond
markets and increase the level of rule of law in their
development, promote the sound development of the multilevel
capital market, and ensure that the proportion of direct
financing is increased," Li said.

The reassurance comes after Chinese markets erupted in 2015,
with the stock indexes crashing and the yuan sliding sharply
against the dollar.

Both moves prompted heavy-handed intervention from the
government both onshore and in offshore markets, leading some to
question whether the Chinese Communist Party was capable of
following through on its commitment to let markets play a
"decisive role" in setting the price of assets.

Li said China will open its capital account in an "orderly
manner" and continue to improve the exchange rate regime in
2016.